After nearly three years of operating in a tough environment, and completing the takeover of EPP, Redefine Properties says it is now focused on efficiently managing its premium assets and selling those considered noncore.
The group’s high gearing levels, which reached more than 40% in November 2019, were limiting access to additional debt funding. This led Redefine to sell assets that were not producing income at levels the company expected, in a bid to reduce borrowings.
“Our balance sheet is back at levels where it can absorb unexpected shocks to the systems,” CEO Andrew König told Business Day.
König said even before the Covid-19 pandemic, strengthening the balance sheet was, and remains, an imperative to the company’s sustainability and long-term expansion plans.
Redefine is a JSE-listed real estate investment trust (Reit) which owns a diversified property portfolio in SA (59%) and Poland (41%).
In its annual results in 2019, Redefine’s loan-to-value (LTV) was 43.9% and this has been reduced to 41.9% from 42.4% during the full year of 2021. The company will conclude its balance sheet derisking plan with a further R3.7bn in disposals to reduce its gearing long-term target of between 38% and 41%.
“Our share price isn’t at competitive levels that will enable us to raise capital, hence we will continue selling noncore assets,” König said.
Redefine has completed the takeover of Poland’s largest retail landlord, EPP, which bagged the company about R7.2bn in additional equity. The transaction increased Redefine’s shareholding to 95.5% from 45%, resulting in its asset value growing to about R91bn from R73bn.
EPP has not paid dividends in two years due to its high debt levels which resulted in the Redefine takeover offer. Redefine is now restoring EPP to a dividend-paying position.
“Poland gives us geographic diversification, its economy is growing, along with demand for our retail and logistic assets, and we intend remaining in Poland for now.”
König said banks are willing to lend it money, while Poland remains largely unaffected by the invasion of Ukraine. Current labour shortages, however, will affect Redefine’s ability to roll out its development activity and high inflation is resulting in elevated steel prices.
In SA the company will continue to sell assets across the board that are no longer contributing at levels they should, he said. The sales will take place on merit, however, and not just for any price. Before deciding to sell anything, the company will explore alternative uses such as offices being converted to residential, church or school properties.
“The focus will be on active asset management and relevant use for occupiers because in the current environment, it’s harder to motivate for selling.”
Aligned to this will be the implementation of digital interventions and tapping into other data to make informed decisions on how best to manage the assets. Having the right people doing the right things within the company are important to its success, he said.
The company will need to operate as efficiently as possible in a competitive environment where there is a lot of pressure on rental renewals, König said.
SA’s constrained economic growth and unemployment will continue to put strain on the oversupplied office market so Redefine will remain focused on the relevancy of these assets. He added that the company is well-positioned to take advantage of a flight to quality considering its premium and A-grade office stock.
The company said it is seeing good recovery in retail, with foot count returning to prepandemic levels at large malls, and it remains bullish about the sector’s prospects. Redefine is developing Kwena Square, a convenience centre, for R174.9m in Gauteng, and an industrial asset in Brackengate II, Montagu Snacks, (50.1% share) for R22.3m.
The industrial sector remains defensive due to longer leases, however, lack of market growth has resulted in negative reversions, König said. Redefine has a sizeable land bank and the development of logistic assets will be demand-driven with no speculative developments undertaken.
König said unemployment levels will need to come down to stimulate demand for office space. “Until we have sustainable economic growth of about 3.5%, I don’t believe office vacancies will improve in the short- to medium-term.”
Redefine will embed environmental, social and governance (ESG) in all aspects of what the company does, as this has enabled Redefine to broaden its funding sources. ESG will be an imperative to accessing capital in future, he said.
“We remain intent on maintaining a strong balance sheet” and sustaining “long-term growth” in returns to our shareholders, said König.
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